Do we place too high of a value on “reputation?”

Do we over-value reputation?

Do we over-value reputation?

There are a good deal of concepts in “the modern world” (I only put that in quotes because it kind of sounds like a buzzword) that we seem to assign a lot of value to, but maybe we should rethink that. One major example for me is the whole idea of professionalismIt’s extremely important as a baseline concept, yes, but often bosses start to use it as a weapon — against promotions, against greater opportunity/responsibility, etc. That’s not the intended reason it emerged in professional society. Another example would be the idea of “always being customer-first.” That, too, is super-important on face — your customers buy your products and thus make you money — but when you go whole hog on the customer, you tend to ignore your employees. That’s going to create turnover. The end game won’t be amazing. Same thing goes for the concept of “hiring for cultural fit.” People toss that expression around a lot, assign a lot of value to it — same as “hiring with intention” — but in reality, very few people know what it even means.

Here’s another example: the idea of “reputation.” There’s a long, but very good article about this over at Northwestern’s business school website. It brings in some economic and social science theory, which can be tedious for those that like to get right into an issue, but here’s the crux of it:

Most fundamental models of reputation assume that whenever information is communicated openly in the marketplace, the principal is protected from opportunistic behavior on the part of the agent. A careless surgeon will develop a reputation for carelessness; a dishonest car mechanic will suffer as word spreads. “Theoretically,” Grayson says, “reputation is meant to reduce information asymmetry.”

In reality, however, reputation does not always have the desired effect. Information does not travel perfectly through all markets, and even when it does, there are limitations to its impact. This complicates the traditional understanding of exchange relationships. While agency theory assumes that clients will only participate in a market if they have access to appropriate safeguards—such as guarantees, third-party insurance, or a dependable litigation process—Grayson’s research suggests that that is not always the case.

Let me break that down a little bit: the whole concept behind “reputation,” essentially, is that the provider of a service is supposed to care about their reputation — their brand, in a way — and when they don’t care or are sloppy/disinterested, information about that is supposed to get out into the market (think Yelp, TripAdvisor, etc.) and that information is supposed to decrease the reputation of the provider, and thus drive business away from them.

Oracle of Omaha reputation

Here’s the problem there (well, here are several problems there):

  • Information almost never travels perfectly. (See: new business funnel models.)
  • There’s no real guarantee that brands actually care about their reputation.
  • When consumers hear something negative about a reputation, they often discount it as a “one-off” or attributable to side factors.
  • In a world where earnings are somewhat stagnant, people (i.e. consumers) may still chase the price of a provider, as opposed to the reputation of a provider.

The Northwestern research has some cool stuff about people that try to climb Mount Everest — that’s a small group, i.e. 225 or so people a year globally — and there’s no real Yelp for Everest tour groups. In fact:

In interviews with thirty clients and twenty-two guides, Grayson and Tumbat found that most clients feel that they are protected by reputation—that the fear of earning a bad name will act as a check on guides’ potentially opportunistic behavior. That means companies have little incentive to make the contract more balanced, and clients are left with a decreased chance of fulfilling their ultimate goal. “What we found,” Grayson says, “is that clients assume that reputation works when it really doesn’t.”

So … in “specialty” situations — which, Everest or not, the base idea of “travel” often involves — consumers feel protected by reputation, but that might be erroneous, and as such, tour companies can charge more or add things into the contract, etc.

This is Ground Zero for the ultimate fraying of the customer-provider relationship — and remember, people have been saying “Your reputation is everything” for years. Maybe that’s becoming less true, and maybe that’s in part because the overall value of “brand” is declining.

It gets kind of weird when you start thinking about the overall idea of the “sharing economy.” The entire concept there is trust. Like, it’s the entire concept. When you get into an Uber or stay at someone’s AirBNB, what are you doing? You’re trusting them. You’re trusting their reputation.

And that has become huge business.

So if the entire idea of ‘reputation’ and how we’re thinking about it is wrong, is that going to eventually be the tipping point for a pre-IPO Uber? It’s possible.

Or are we all just blindly throwing trust at people and organizations that don’t deserve our trust?

This has implications all over your life: whether you trust your manager at a new job, whether you trust the keynote speaker at a conference you attended, whether you trust your brother-in-law to pay back a loan, whether you hire that babysitter or this one, etc. The way business has shifted comes back so much to trust and reputation.

What’s your two cents on it? How important is “reputation” to you, and do you think you’ve ever over-or-under-emphasized it?

Ted Bauer


  1. Ted: I like your challenge to the sacred cow that trust is everything. I cannot tell if the importance of trust is increasing or diminishing. But one thing is for sure; the metrics of trust are changing and the custodians of those metrics are algorithms. Which in itself is a problem – no algorithm yet devised can interpret subtle signals in the same way we can perceive them. Personally, I treat these as hygiene factors only. The notion that actions speak louder than words has never been truer IMHO.

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